Restore plc
Insider buying + cheap valuation — but a balance-sheet flag
How we would trade it, in plain terms
We are not buying this yet. On the surface it looks like a cheap, good-quality recovery with a director buying — but a look at the accounts found a debt problem big enough that we want to check the loan terms before risking money. So it's held back, not bought.
What the company does
Restore is a UK business that stores and manages companies' physical records and data, securely shreds documents, and runs digital/data services. The revenue is sticky and repeats year after year (customers don't move their archives easily), which is the attractive part.
The idea — and why it's held
It looks cheap and is recovering: it trades around 9–10 times next year's earnings, a director bought shares at 273p, half-year revenue grew about 15%, and it hit its 20% profit-margin target. Against its closest peers that looks very cheap — Iron Mountain, the big records-management company, trades at around 48 times earnings, and Rentokil (business services) around 19 times.
What we think the market is missing — and the catch
The bull case is that the market is too focused on a past stumble and on how messy the accounts look at first glance, and is under-pricing the sticky, recurring revenue and the margin recovery. The catch — found in the accounts — is debt. Restore owes roughly five times its annual profits in borrowings, its short-term bills slightly exceed its readily-available cash, and it made an accounting loss last year. Crucially, that cheap "9–10 times earnings" is flattered by the debt: on a measure that includes the borrowings, it isn't cheap at all. The leverage is why the shares are low, and it directly contradicts the "high-quality" part of the story.
The signal we are acting on
The genuine positive is a director buying shares at 273p — money where their mouth is. But a single insider buy isn't enough to offset a balance-sheet we haven't yet de-risked.
The investor checklist (the proven-investor tests)
- Returns on capital / moat — sticky, recurring revenue (a moat), but last year showed an accounting loss. (mixed)
- Capital allocation — acquisitive (it grows by buying others), which is what built the debt. (a concern)
- Margin of safety — the cheap earnings multiple is flattered by leverage; on a debt-inclusive basis it isn't cheap. (fails this test)
- Cash quality — it does generate real cash that covers its interest. (pass)
- Balance sheet — about 5 times debt-to-profit and tight short-term liquidity. This is the blocker. (fails this test)
- Variant perception + "how could we lose?" — recovery underpriced, but an integration stumble or refinancing squeeze would hurt. (a concern)
- Insider alignment — a director bought at 273p. (pass)
What would make us reconsider
A clean check of the debt: when the loans fall due, what the loan conditions ("covenants") allow, and whether the cash comfortably services them through a downturn. If that all looks safe, this becomes a genuine cheap-recovery candidate. Until then, it's held.
Sources: Restore half-year and full-year results; the director's share purchase; valuation vs Iron Mountain and Rentokil.
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